Will Florida Embrace Rent Control?
A local board has the opportunity to change course.
Florida Governor Ron DeSantis and the Florida state legislature have an opportunity to act decisively against the worst housing intervention: rent control. In the last election, a highly disputed rent control measure passed in Orange County, driven by activists from Orlando. While Florida already preempts local governments from imposing price controls on housing, there is a loophole allowing jurisdictions to impose such restrictions if there is a “housing emergency.” What constitutes a housing emergency is now being adjudicated by the courts in Florida, but action by the legislature could settle the issue by closing the loophole.
First, it’s worth covering the basics of rent control, which is essentially a price control. All price controls have the effect of disincentivizing production by limiting cost recovery and creating uncertainty about whether an investment will produce a return. At its heart, every attempt to control prices – whether of rent, fuel, or otherwise – is a rejection of the price system, explained by economists such as Friedrich Hayek. The price system is a core tenet of classical liberal economics: prices are a signal that prompt changes in behavior. If prices rise, investors see an opportunity to develop products at a competitive price. The resulting efficiency is a product of innovation and ingenuity, and inspires more production.
I’ve written extensively about the almost universally accepted negative effects of rent control on the housing market. Yet it is still a bedrock tenet for many progressive housing advocates. Housing markets with the highest prices, like San Francisco and New York City, have had rent control measures in place for decades, yet these cities are always at the top of the list of cities with the highest rental costs. In the end, rent control does nothing for people who earn less money but make housing harder to attain.
Orange County’s measure came as a response to rising rents in the biggest city, Orlando. The County Board of Commissioners put the measure on the ballot back in August citing rising rents. Earlier in the year, a story quoted one commissioner saying, “We have to do something, right?” But the Commissioners were warned that if they passed a measure it would run up against state law prohibiting rent control. But the Commission was well advised. Florida statute 125.0103(5)(b) creates an opportunity for local governments to impose rent control if an “emergency” exists. The statute allows local government to do so if
Such governing body makes and recites in such measure its findings establishing the existence in fact of a housing emergency so grave as to constitute a serious menace to the general public and that such controls are necessary and proper to eliminate such grave housing emergency.
Here’s where irony comes in. The board’s measure beautifully sums up the emergency, especially Section 25-381 (c)-(g):
There is a shortage, scarcity, and insufficient supply of dwelling houses and apartments in Orange County, Florida. Relative to population, national production of housing units has declined from approximately 0.82 homes per person in the 1970s to approximately 0.45 homes per person in 2019. In Orange County, there is a shortage of as many as 26,500 housing units relative to the County’s need.
That’s exactly the way I would have tried to explain the problem. Demand is exceeding the economy’s ability to supply that demand, which means higher prices in the rental market, just like Hayek or Milton Friedman would have predicted.
The measure goes on to cite how the area’s population has increased from 1.15 million people to 1.43 million people and points to a low vacancy of 5.2 percent in 2021, “the lowest on record since at least the year 2000.” And the measure goes on to note rising rates of rent and inflation as the outcome of the supply shortage. At this point, I’m in complete agreement with the measure’s logic.
The measure should have concluded with something like, “Therefore the Board finds that all regulations limiting the construction and permitting of housing should be suspended unless they directly affect or promote the health and safety of residents and the community, including all zoning and land use codes that slow, limit, or add costs to housing production in Orange County.”
This would have been consistent with what I have found in many markets, that when population goes up and the number of permits issued doesn’t, housing prices and rents start to climb. Housing everywhere is too hard to finance and build, which is becoming more of a problem as interest rates go up. Now is the time to open the gates of supply by removing the barriers already making housing hard to build. A headline in the Orlando Sentinel from last year says it all: Florida home-building permits boom, but not so much in metro Orlando.
But does the board’s measure conclude with a statement calling for increased production? It does not. Instead,
The Board finds that a rent stabilization measure is necessary and proper to eliminate the County’s housing emergency which is so grave as to constitute a serious menace to the general public.
This is a classic move by left-leaning governments. When prices rise, instead of allowing increases in production to boost supply, the response is to limit price increases.
The legislature has an opportunity in its next session to shut the rent control loophole in Florida with a resounding thud. Can the state legislature do this? One concern is what’s called the Dillon Rule, a practice of pushing many decisions to the local level. Florida has a pretty strong tradition of local control. The Florida League of Cities cites the Florida constitutional provision that
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Municipalities shall have governmental, corporate and proprietary powers to enable them to conduct municipal government, perform municipal functions and render municipal services, and may exercise power for municipal purposes except as otherwise provided by law.
Lawyers would have to intervene and provide the road map for the legislature. Ohio is an example of a state with a strong Dillon Rule that has shut the door to rent control before cities started to act. Earlier this year, the Ohio legislature acted decisively to limit rent control, finding that “housing supply is a matter of overriding statewide interest that requires a uniform approach to rent control and rent stabilization measures in residential premises throughout the state.”
Florida has been the talk of the nation for having become a deeper shade of red. Taking a strong stand against the efforts of Orange County to make the wrong moves on housing policy could show the rest of the country how to govern using sensible economics. States such as Washington that once had preemption are debating whether to end it, and states such as Oregon that previously resisted rent control now embrace it. Governor DeSantis’s Covid-19 interventions set Florida apart from the rest of the country. Will Florida do the same in 2022 on housing?